By Anchor Capital
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South African Market Review
South African markets closed higher yesterday. Group Five, Clientele Limited and Mpact Limited climbed 7.4%, 5.9% and 5.8%, respectively, and emerged as the major gainers. AfroCentric Investment Corporation gained 2.7%, after it indicated that its revenue increased 8.4% in 1H15 from the comparable period previous year. Banking sector stocks, FirstRand, Barclays Africa and Capitec Bank advanced 2.5%, 1.3% and 1.3%, respectively. Sasol rose 0.9%. However, gold miners, Harmony Gold, Sibanye Gold and AngloGold Ashanti dropped 3.0%, 2.5% and 1.9%, respectively. Exxaro Resources fell 2.9%, after the company announced that its CEO, Sipho Nkosi, would retire on 31 March 2016. The JSE All Share Index rose 1.2% to close at 52,455.36.
UK Market Review
UK markets finished higher yesterday, with the FTSE 100 index snapping its four-day losing streak. Mining sector stocks, Antofagasta and Glencore added 3.4% and 1.3%, respectively. Kingfisher advanced 2.0%, after its deal to buy French firm Mr Bricolage did not materialise. Randgold Resources rose 1.2%, after its CEO pointed to likely opportunities in the probable restructuring of the gold mining industry. Compass Group advanced 1.0%, following a company announcement that it expects to achieve a 5.5% 1H15 organic revenue growth. Bucking the trend, CRH edged down 0.1%, amid concerns that Holcim investors were not satisfied with its revised merger deal with Lafarge. The FTSE 100 Index advanced 0.5% to close at 6,891.43.
US Market Review
US markets ended in the green yesterday. UnitedHealth Group climbed 2.5%, after the company announced that its pharmacy benefits unit, OptumRx, would acquire Catamaran Corp. Apple rose 2.5%. A report emerged late last week that the firm would introduce three new iPhone models this fall. Chevron advanced 2.5%, as the company completed the sale of its 50.0% stake in Caltex Australia Limited for $3.70bn. American Airlines Group, Delta Air Lines and Southwest Airlines gained 1.9%, 1.5% and 0.8%, respectively. However, Noble Corporation and Ensco lost 0.9% and 0.8%, respectively. The S&P 500 Index rose 1.2% to settle at 2,086.24, while the DJIA Index climbed 1.5% to close at 17,976.31. The NASDAQ Index advanced 1.1% to finish at 4,947.44.
Asia Market Review
Markets in Asia are trading firmer this morning. In Japan, Bandai Namco Holdings jumped 3.4%, after it stated that it would license rights to some of its popular classic games such as Pac-Man and Galaxian. Fujifilm Holdings gained 2.4%, after it agreed to acquire Cellular Dynamics International Inc. for a cash consideration of about $307.00mn. In Hong Kong, China Everbright Bank added 1.2%, after it posted a significant rise in its FY14 profit. In South Korea, Korea Aerospace Industries advanced 4.5%, after the company was selected as the preferred bidder to develop a new fighter jet. The Nikkei 225 Index is trading marginally higher at 19,411.53, while the Kospi Index is trading 0.2% firmer at 2,034.91. The Hang Seng Index is trading 0.4% higher at 24,964.58.
Commodities
At 06:00 SAST today, Brent crude oil fell 1.3% to trade at $54.07/bl. Traders await today’s deadline for discussions between Iran and six other nations over its nuclear programme. A possible relaxation of sanctions on Iranian oil exports significantly increase the glut in global oil supply. Yesterday, Brent crude oil rose 0.8% to settle at $54.79/bl. Oil prices found support after Russia’s Foreign Minister, Sergei Lavrov, left Iranian nuclear talks in Switzerland on Monday afternoon to return to Moscow, fuelling speculation that western powers and Tehran would fail to reach an agreement before today’s deadline.Yesterday, the Illinois North Central No.2 Yellow corn spot prices rose 1.1% to $3.75/bushel.
At 06:00 SAST today, gold prices declined 0.4% to trade at $1,181.02/oz. Yesterday, gold declined 1.0% to close at $1,186.07/oz, on a stronger US dollar.
Yesterday, copper rose 0.5% to close at $6,106.50/mt. Aluminium closed 0.9% higher at $1,792.00/mt.
Currencies
Yesterday, the South African rand weakened against the US dollar, after data indicated that pending home sales in the US rose more than expected in February. Personal spending in US recorded a rise in February, but lower than market expectations of an advance. Additionally, private sector credit in South Africa for February was lower than the previous month. Going forward, market participants will eye consumer confidence data in US and trade balance data in South Africa, scheduled today.The yield on benchmark government bonds rose yesterday. The yield on 2015 bond advanced to 6.15% while that for the longer-dated 2026 issue rose to 7.91%.
At 06:00 SAST, the US dollar is trading 0.1% higher against the South African rand at R12.1569, while the euro is trading 0.3% lower at R13.1205.
Yesterday, the euro declined against the US dollar, but advanced against the South African rand. Meanwhile, the final print of the eurozone consumer confidence for March was in line with the preliminary estimates and higher than the previous month. Moving ahead, investors will keep a tab on the preliminary reading of the eurozone’s annual CPI and unemployment change data in Germany, due later today.
At 06:00 SAST, the euro dropped 0.5% against the US dollar to trade at $1.0794, while it has remained almost unchanged against the British pound to trade at GBP0.7304.
Economic Updates
The South African Reserve Bank has indicated that, in South Africa, the private sector credit recorded a rise of 8.7% in February on an annual basis. The private sector credit had registered a rise of 9.2% in the previous month.The M3 money supply in South Africa registered a rise of 8.1% on an annual basis, in February. M3 money supply had registered a rise of 7.4% in the prior month.
The Bank of England has reported that, in February, net lending to individuals in the UK rose GBP2.50bn, in line with market expectations. Net lending to individuals had registered a rise of GBP2.40bn in the previous month.
The net consumer credit registered a rise of GBP0.74bn in the UK in February, lower than market expectations for a rise of GBP0.90bn. Net consumer credit had risen by a revised GBP0.80bn in the previous month.
In March, the consumer confidence registered a rise to 4.00 in the UK, compared with a reading of 1.00 in the previous month.
In March, on a monthly basis, the preliminary consumer price index (CPI) in Germany climbed 0.5%, more than market expectations for an advance of 0.4%. In the previous month, the CPI had advanced 0.9%.
In March, the final consumer confidence index advanced to -3.70 in the eurozone, in line with market expectations. In the previous month, the consumer confidence index had registered a level of -6.70. The preliminary figures had also indicated an advance to -3.70.
The core personal consumption expenditure in the US recorded a rise of 0.1% on a monthly basis in February, at par with market expectations. Core personal consumption expenditure had registered a similar rise in the prior month.
On a monthly basis, the pending home sales climbed 3.1% in the US, in February, higher than market expectations for an advance of 0.4%. The pending home sales had advanced by a revised 1.2% in the prior month.
In February, personal spending in the US recorded a rise of 0.1% on a monthly basis, lower than market expectations for an advance of 0.2%. In the prior month, personal spending had fallen 0.2%.
Japan Automobile Manufacturers Association (JAMA) has reported that, on a YoY basis, vehicle production recorded a drop of 5.3% in Japan, in February. Vehicle production had dropped 9.7% in the prior month.
Corporate Updates
South AfricaAfroCentric Investment Corporation
: The investment holding company, in its 1H15 results, indicated that revenue increased 8.4% from the corresponding period of previous year to R1.02bn. Its diluted EPS stood at R0.20, compared with R0.24 recorded in the same period a year ago. In addition, its headline EPS was R0.22, compared with R0.26 posted in 1H14.Times Media Group Limited: The media company, in its financial results for the six months ended 31 December 2014, indicated that revenue from its continuing operations increased 0.8% from the same period a year ago to R2.11bn. Its diluted EPS from continuing operations stood at R0.66, compared with R1.71 recorded in the corresponding period of last year.
Exxaro Resources Limited: The energy company announced that Sipho Nkosi, the Chief Executive Officer (CEO), would retire on 31 March 2016. The company indicated that MxolisiMgojo, currently the company’s Executive responsible for carbon operations, has been appointed as CEO-designation a transition period effective from 1 May 2015 until 31 March 2016 when his appointment as CEO will become effective.
Aeci Limited: The chemicals company announced that Schalk Venter, a member of its Executive committee and Managing Director of AEL Mining Services Limited, would be leaving the group on 15 May 2015to pursue another opportunity in industry.
Curro Holdings Limited: The company announced that it intends to raise approximately R740.00mn by way of a partially underwritten renounceable rights offer.
African Oxygen Limited: The company announced the appointment of SchalkMarthinus Venter as its new Managing Director and Executive Director, effective from 18 May 2015.
Pallinghurst Resources Limited: The natural resources investment company announced that Gemfields has received an award for the ‘Best Basic Resources Plc’ category at the 2015 UK Stock Market Awards held in London on Thursday 26 March 2015.
Adcorp eyes future Singapore listing: Workforce management group Adcorp is considering listing its non-South African assets in Singapore in FY18.
Algeria back in focus as AfriSam deal flops: PPC’s decision to halt merger talks with AfriSam shifts the focus back to whether it will take on former CEO Ketso Gordhan’s sizeable Algeria deal, and the firm’s ability to contain debt as it completes costly but important deals elsewhere in Africa.
UK and US
American Realty Capital Properties: The company, in its FY14 results, indicated that revenue increased sharply to $1.58bn from $0.33bn recorded in the previous year. It reported a basic and diluted net loss from its continuing operations of $1.36/share, compared with a loss of $2.41/share recorded in the prior year. The company stated that it would establish a common stock dividend later in FY15, which is expected to be in line with net lease peers and paid on a quarterly basis.
Cal-Maine Foods: The company, in its 3Q15 results, stated that net sales increased 10.6% from the same period a year ago to $437.56mn. Its net diluted EPS was $1.05, compared with $0.89 posted in the corresponding period of last year. The company stated that going forward, it would continue to monitor market conditions that could influence its business, including the changing situation in California as well as the national hen supply.
Argos Therapeutics: The biopharmaceutical company, in its FY14 results, indicated that revenue dropped 55.4% from the preceding year to $1.97mn. Its basic and diluted net loss attributable to common stockholders was $3.12/share, compared with a loss of $147.37/share recorded in the previous year. The company stated that full enrollment and randomisation in the phase 3 ADAPT trial for AGS-003 in mRCC is expected by the end of 2Q15.
Sphere 3D Corporation: The virtualisation and data management solutions company, in its FY14 results, stated that it earned net revenue of $13.47mn. It incurred a basic and diluted net loss of $0.53/share, compared with a loss of $0.19/share posted in the prior year.
Books-A-Million: The bookstore company, in its FY15 results, indicated that total revenue rose 0.8% from the last year to $474.08mn. Its diluted EPS from continuing operations stood at $0.23, compared with a diluted loss of 0.51/share recorded in the previous year.
RXi Pharmaceuticals Corporation: The biotechnology company, in its FY14 results, stated that total revenue dropped to $71.00k from $399.00k recorded in the previous year. Its basic and diluted loss was $0.79/share, compared with a loss of $2.88/share posted in the last year.
Catamaran Corporation: UnitedHealth Group Inc.’s OptumRx agreed that it would acquire the provider of pharmacy benefit management services for $61.50/share, or $12.80bn, to add clients and improve its technology.
Horizon Pharma: The pharmaceutical company announced the acquisition of Hyperion Therapeutics for about $1.10bn, gaining two treatments for genetic disorders.
Auspex Pharmaceuticals: The biopharmaceutical company along with Teva Pharmaceutical Industries announced that that they have entered into a definitive merger agreement under which Teva will commence a tender offer for all of the outstanding shares of the company at $101.00/share in cash, representing total consideration of approximately $3.20bn in enterprise value and approximately $3.50bn in equity value, to boost its portfolio of treatments for the central nervous system.
Compass Group: The contract foodservice, cleaning, property management and support services company, in its trading statement ahead of its results for 1H15, stated that the company is having a strong first half of the year, with expected organic revenue growth towards 5.5% and operating profit margin improvement of around 10 basis points. It revealed that it is seeing good levels of new business, high retention rates, and modest like for like revenue growth for the period. The company further stated that its expectations for the full year remain positive.
Randgold Resources Limited: The mining company indicated that its total attributable ore reserves in FY14 have increased, despite significant depletion from mining in a year that delivered record production of 1.15mn oz. It stated that its attributable reserves are up by 0.8%to 15.20mn oz,while resources decreased by 3.0% to 27.80mn oz. The company proposed a 20.0% increase in the FY14 dividend to $0.60/share for approval at its annual general meeting on 5 May 2015 and revealed its intention to continue to pay a progressive ordinary dividend that would increase or at least be maintained annually. Furthermore, the company stated that it is looking at the growth opportunities being generated by the current squeeze on the gold mining industry.
Al Noor Hospitals Group: The healthcare services company, in its FY14 results, indicated that its revenue increased 23.0% from the preceding year to $449.06mn. Its diluted EPS stood at 69.20¢, compared with 56.20¢ reported in the previous year. The company stated that it is committed deploy and demonstrate a new, more integrated healthcare delivery system.
Diploma Plc: The company, in its trading statement for six months ended 31 March 2015, stated that the businesses acquired during the past year have contributed to the overall results and the revenue is expected to be approximately 9.0% ahead of the comparable period. However, on an underlying basis, after adjusting for the impact of currencies and acquisitions, revenues are expected to increase by approximately 2.0%.
Vodafone Group: The telecommunication company announced that following its new agreements with Visa and Carta Worldwide, customers in the European market from 2Q15 would be able to add bank cards to their Vodafone Wallet and use smartphones to pay for goods and services at contactless terminals. It stated that this service which requires a Vodafone NFC SIM, would be supported on a wide range of Android smartphones.
Rolls-Royce Holdings: The energy company announced that the airline company, Air China has selected its Trent 1000 engines and long-term TotalCare® support which would be used to power 15 new Boeing 787-9 Dreamliner aircraft.
Kingfisher Plc: The retailing company announced that its acquisition of Mr Bricolage would not proceed as the agreement has lapsed since the anti-trust clearance has not been obtained by the required date.
IP Group: The developer of intellectual property-based company notified that the portfolio company, Diurnal Limited, has announced that the first patient has been enrolled onto its Phase 3 trial of paediatric product Infacort, which is a study for Diurnal’s portfolio of late-stage products targeted at rare disorders of the endocrine system.
Serco Group: The services company revealed that it has agreed the sale of its Great Southern Rail business to Australian private equity firm Allegro Funds for an enterprise value and cash consideration of GBP2.50mn.
Financial Times
McCarthy & Stone profits soar on baby boomer spending: McCarthy & Stone saw first-half pre-tax profits soar 76 %to £32m as the UK’s largest housebuilder for older people continues to benefit from the country’s rising population of affluent baby boomer homeowners.
McLaren launches cheapest car yet at GBP145,000: McLaren, British maker of the GBP1.00mn P1 “hypercar”, is to launch a ‘cheaper’ car, the first of a range aimed at more than doubling annual sales.
John Cridland to boldly go after five-year mission on CBI bridge: The CBI has begun to look for a new director-general to replace John Cridland, who has decided to step down after five years in the role.
Gulf Keystone launches GBP30.00mn share placing: Gulf Keystone Petroleum, the cash-strapped oil producer that put itself up for sale last month, has launched a placing of shares aimed at raising a minimum of GBP30.00mn to ease its short-term funding problems.
Quindell sale heralds ‘big break with the past’: Quindell, the former stock market star that became a cautionary tale of poor corporate governance, heralded “a big break with the past” on Monday, as it confirmed the sale of most of its insurance business for an initial GBP637.00mn in cash.
Shawbrook narrows price range ahead of float: Shawbrook, the challenger bank, has narrowed the price range of its shares ahead of its debut on the stock market on Wednesday. The flotation is expected to value the lender at more than GBP700.00mn.
BT and Virgin Media join forces over high-speed broadband: The groups have written a strongly worded letter to Ofcom, the industry regulator, arguing that any attempt to open up high-speed business broadband networks to rivals will lead to higher prices and lower investment in the UK.
Head of RBS’s investment bank resigns over strategy differences: Rory Cullinan has resigned as head of Royal Bank of Scotland’s investment bank only a month after being promoted to the role, following a falling-out with senior management over strategy.
Swiss bank BSI to pay $211.00mn in US tax evasion probe: Swiss private bank BSI will pay a $211.00mn penalty as the first financial institution to resolve a tax probe in a landmark US justice department programme that is aimed at having banks self report tax evasion efforts.
Merger season looms for Italy’s popolari: PVE Capital, a specialist pan-European credit investor, has announced it has bought EUR400.00mn of Italian non-performing loans in one of the largest NPL transactions in Europe this year.
UnitedHealth pays $13.00bn for drug-benefits manager amid deal flurry: The largest US health insurer is to spend almost $13.00bn to buy a company that manages prescription medicines for 35.00mn patients, the biggest in a series of healthcare deals announced on Monday as consolidation in the industry continues at a blistering pace.
Ford to revive the Lincoln Continental: Lincoln, Ford’s luxury brand, on Monday took the most daring initiative yet in its revival efforts when it unveiled plans to relaunch the Continental, in an attempt to sharpen its competitive edge against the sector’s German and Asian giants.
Volvo to build new $500.00mn US factory: Swedish carmaker Volvo is to invest $500.00mn to build a new factory in the US as it seeks to double its sales in the world’s second largest auto market.
Prada profits sink amid Asian and European sales slowdown: Profits at Prada tumbled 28.0% last year as sales took a hit in Europe and Asia-Pacific, prompting the luxury Italian fashion house to implement cost-cutting measures.
BMG signs distribution deal with Alibaba: China’s leading ecommerce group Alibaba has signed a distribution deal with music company BMG in the latest content deal featuring Chinese internet companies.
Jay-Z enlists top acts to promote new streaming service: Jay-Z has enlisted some of music’s biggest names as equity partners in his new streaming music service, offering stock and cash in exchange for promotional and marketing support from artists including Madonna and Kanye West.
Kingfisher takeover of Mr Bricolage collapses: Kingfisher’s plan to take over Mr Bricolage has collapsed after one of the French DIY chain’s major shareholders failed to agree to an extension to a deadline for competition approval.
Coding forum Github hit by suspected Chinese cyber attack: Github, an online forum for software developers that also hosts tools used by Chinese internet users to bypass censorship, has been hit by a powerful cyber attack that security experts believe originated in China.
Vodafone to add bank cards to mobile wallet service: Vodafone will add bank cards to its mobile payments service following an agreement with Visa and Carta Worldwide Smiths Group: Lost 2.8% to GBP11.29 after Merrill Lynch named the engineering conglomerate one of its key sells for reporting season.
LexUnitedHealth: changing the channel: On Monday, UnitedHealth, best known as an insurer, bought the pharmacy benefit manager Catamaran for $12.80bn. PBMs run prescription drug plans for insurers and companies. They have been actively sought as acquisition targets. But the buyers come from a variety of health subsectors, leading to the question of which companies are the most appropriate owners. With an enterprise value of $70.00bn, the largest PBM today is Express Scripts, which bought Medco for $34.00bn in FY11. Express Scripts is a pure-play PBM. However, its Chief rival CVS Health employs a more controversial business model – it owns a retail pharmacy chain and a PBM, Caremark. As a result, CVS once had difficulty reaching a PBM agreement with Walgreens, which is the arch-rival of the CVS pharmacy chain. Catamaran, however, generates a third of its revenue from Cigna, an insurance rival of UnitedHealth, which may not be thrilled about sending money to a competitor. The Cigna contracts runs until FY23. It may take that long to disentangle and resolve who is aligned with whom.
Dufry/WDF: premium shopper: Dufry, the global travel retailer, might need such extra support for its bulging shopping bags. It has bought six airport retailers since FY06, including Nuance Group for $1.70bn last year. This week it said it would pay EUR1.30bn in cash for a majority stake in World Duty Free, an Italian rival. The sellers are the Benetton family, which owns 50.1 %of WDF. Minority shareholders will eventually receive the same offer. The former trades closer to 11 times, which is above its five year average. Even assuming a combination of equity (40.0%) and debt, this deal will not add to earnings per share before 2017. From that year Dufry management promise EUR100.00mn in annual cost savings, which is less than 10.0% of WDF’s operating expenses. What does Dufry gain from this deal? For one it would have greater access to European airports, particularly in the UK. WDF earns more than half of its ebitda there. Moreover, the combined group’s global market share would rise by half to a healthy 24.0% by sales. But that does not merit such an expensive expansion. Dufry needs a break from the retail therapy.
Prada: not yet in the bag: Prada’s share price moves can be as eye-catching as the Italian luxury group’s handbags. Its Hong Kong-listed shares initially rose by 2.0% on Monday after it said FY14 net profit fell 28.0% to a worse than expected EUR451.00mn. The shares gained double that last month after Prada reported declining annual sales. Investors were primed for weakness after Prada trailed the 5.0% sales slide in Asia (excluding Japan) last month. Hong Kong protests and Beijing’s clampdown on showy gifts led to a 7.0% fall in China as a whole. Prada’s net 54 store openings in FY14 (on a base of 594) hardly suggest discipline; the net 30 planned this year begin to. Yet investors who bought its shares on Monday have to believe that Prada has responded to the change in market conditions. Maybe so. But its lacklustre performance in Asia also points to a rift between the luxury goods mainstream and, say, Hermès, whose understated products are more in tune with the broader global shift towards discreet luxury. The French group lifted sales in Asia-Pacific by 13.0% last year, for example. Nor are Prada’s improved sales in America and Japan enough to offset the Milan-based house’s lost momentum in Asia. It is at least financially sound, with robust cash flows and net cash. But to expect investors to pay an exalted 28 times FY15 earnings – a valuation closer to Hermès (32) than Burberry (23) or LVMH (21) – is asking too much.
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